Despite government handouts, global recession fears remain: Economy roundup

The great government cash giveaway continued in the United States last night, with the US Government unveiling plans to spend $US250 million taking equity stakes in some of the country’s biggest financial institutions.

The great government cash giveaway continued in the United States last night, with the US Government unveiling plans to spend $US250 million taking equity stakes in some of the country’s biggest financial institutions.

The move – which follows similar actions by European governments in the last few days –will also see the US Federal Deposit Insurance Corporation guaranteeing new bank debt and that the Federal Reserve becomes a buyer of last resort of commercial paper (the short-term loans that companies use to fund day-to-day operations).

Markets liked the US Government’s action, but it was not enough to take investors’ minds off fears of a recession in the US and other major economies.

Last night, Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the US would suffer its worst recession in 40 years, and the credit crisis continues to spread. He predicted the recession will last 18 to 24 months, driving unemployment to 9% and sending already depressed house prices down another 15%.

Those cheery predictions and a 1% fall in the Dow Jones Industrial Average may have weighed on Australian investors this morning. The benchmark S&P/ASX200 index fell 0.8% or 35.9 points to be at 4299.3 at noon AEST.

The big corporate news was relatively positive this morning, with energy company AGL sticking with its forecast of $390 million profit in 2008-09, and blood products company CSL reassuring its shareholders that it expects profit of around $850 million this financial year.

In other news, ANZ announced it has cut its fixed interest rate by 0.8% on loans of up to four years.